corporate law intra-enterprise liability last updated 30 nov 09 latin american law
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Corporate lawIntra-enterprise liability
Last updated 30 Nov 09
Latin American Law
Who is …
Today’s topics
• Protection of foreign investment– Separation of assets / liability
• Disregard of separate incorporation• Intra-enterprise liability: piercing factors• Joint/several or secondary liability
– Administration of insolvent company• Public policy grounds• Use of foreign group’s assets • Confiscation?
… effectively raised serious questions about the validity of constitutional protections of economic activity, the proper role of government in business and society, and more broadly, the ideas of separation of powers and stare decisis.
Michael Lennox
“unified socio-economic unit” …
Juan Peron
“The idea that ‘the public interest’ supersedes private interests and rights can have but one meaning: that the interests and rights of some individuals take precedence over the interests
and rights of others.”
• Model for borrowing
• Gain perspective
• Discover truths
• Impose / power
Value of knowing other legal systems
Lat Am vs multinationals … why?
Stephanie Richeter / Dave Cardamone / Jeff Servas
In re DeltecArgentina Supreme Court (1973)
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Assets = $36.8
Liabilities = $52Government creditor = $23Private creditors = $18Intracorporate = $11
“unified socio-economic unit” …
Juan Peron
“The idea that ‘the public interest’ supersedes private interests and rights can have but one meaning: that the interests and rights of some individuals take precedence over the interests
and rights of others.”
The change of vote from unconstitutional in Carter Coal to constitutional in West Coast Hotel by Justice Owen Roberts has been called “the switch in time that saved nine.”
Jeff Servas
How does “scope of group” relate to capitalism …
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Argentina Business Organizations Act
Article 54: Stockholders shall become fully liable for the obligations of the company when they use the company form to act illegally, inconsistently with the company’s stated business purpose, or to the detriment of third parties.
* * *
Model Business Corporation Act
§ 6.22(b): A shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.
What factors in piercing?
Piercing factorThompson
(1985 study*)
Argentina
Sup Court (1973)
Indiv vs corp 44.4% vs. 23.8%* “unified socio- economic unit”
Tort vs contract 35.7% vs. 31.1%*
Domination 57.0% “circumscribed sub
freedom”
Lack formalities 66.9% “scrupulously
observed”
Inadequate $$ 73.3% “intra-group prices higher
/ funds withdrawn”
Confusion 85.3% Parent describes as
“our property”
Misrepresentation 91.6%
Liability of a Parent Corporation for the Obligations of an Insolvent Subsidiary Under American Case Law and Argentine Law, Hector Jose Miguens, 10 Am. Bankr. Inst. L. Rev. 217 (Spring 2002).
Argentina reconsiders foreign investment …
Foreign Investment Act (1973): “foreign investor liable for local company’s obligations”
Foreign Investment Law (1976):transactions between foreign investor and local company “shall be considered as transactions between independent parties … when in accordance with normal business practices”
What’s changed?How do investors feel?
Shareholders
Swift & Co
Deltec Int’l
Multinational Corporation
US
DeltecArgentina
Cia-Swift Esperanza
Europe
Minority SHs
Sacrifice property rightsin the public interest …
In late 2008, the Siemens International and a host of its subsidiaries were fined over $1.6 billion in the United States under its Foreign Corrupt Practices Act (FCPA).
Michael Lennox
Shareholders
Swift & Co.
Deltec Int’l
Multinational Corporation
US
ColombiaDeltecArgentina
Mexico
Cia-Swift 10 others
Europe
Was bankruptcy court’s administration a taking?
NY Court (1974):
“The determination in Argentina that plaintiff is Bankrupt because it is in corporate group, where one member is insolvent, is not in conformity with American law … and may amount to a confiscation of property.”
Dave Cadamone
End
Andean Pact, the Cartagena Agreement (1969):
In addition to establishing a free trade regime, it proclaimed “one of the fundamental objectives of the common regime must be to strengthen the national enterprise.”
Since the Argentineans believed that foreign companies hurt domestic companies, they handicapped foreign companies.
Tim Corprew
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